Source: Sharecast
RBC noted that Dunelm shares have de-rated by a 2-3 price-to-earnings ratio over the past two years, given a stable profit trend and concerns over maturity.
However, it reckons it should now see an acceleration in growth, driven by market share gains and gross margin improvement.
"The shares have lagged the sector despite DNLM's improving outlook. Hence, we see an opportunity here and upgrade Dunelm to 'outperform'," said RBC.
RBC raised its FY26-27 earnings per share forecasts slightly for Dunelm, following a strong start to FY26, with its discounted cash flow-driven price target rising from 1,200p to 1,300p.
"Dunelm is trading at 13.5x CY26e P/E, well below its historic average of c.16x. We view this as undemanding for a high quality business with a market leading offer, strong operational grip and a cash generative model," added RBC.
When it came to Frasers, on the other hand, RBC downgraded the stock to 'sector perform' from 'outperform', stating that while it views Frasers as one of the "more diverse and resilient retailers" in the sector, it believes the stock's valuation was likely to "continue to be constrained" by a lack of liquidity.
"Following a strong run in the share price, we think there is now less valuation upside compared to some other retailers. Hence we reduce our rating to Sector Perform but also remove our Speculative Risk qualifier," said RBC, which also bumped up its target price on the stock from 775p to 800p.
Reporting by Iain Gilbert at Sharecast.com
